Fed's Kaplan: Four hikes not a sure thing in 2016 

Four US interest-rate hikes are"not baked in the cake" for the Federal Reserve this year, particularly given global stock market volatility set off by fears over a cooling Chinese economy, a top Fed official said on Monday. 

PHOTO: REUTERS

JAN 12, 201611:01 AM

[WASHINGTON] Four US interest-rate hikes are"not baked in the cake" for the Federal Reserve this year, particularly given global stock market volatility set off by fears over a cooling Chinese economy, a top Fed official said on Monday.

The Fed raised rates in December, the first rate hike in almost a decade and ending a seven-year stretch in which rates were held at a near-zero level in response to the 2007-2009 financial crisis and recession.

Investors are now focused on when the next rate hike will be, with economists predicting March.

Fed officials overall expect four rate hikes this year, according to the median of their forecasts from December. "This is an unusual start to the year, obviously," Robert Kaplan, the Dallas Fed's new president, told reporters after a talk here.

Concern about slowing growth in China roiled world markets in August and forced the Fed to hold off raising interest rates in September. This year has started off with global markets again rocked by plunges in Chinese stock markets, a fall in the yuan and subsequent heavy intervention by the Chinese authorities to push the yuan back up.

"We went through this in August and September, we paused, we watched, we let events unfold, which is the right way to handle it, and we saw ultimately that underlying economic conditions remained intact and solvent," Mr Kaplan said. "There's no substitute for time in assessing economic data as it unfolds," Mr Kaplan told reporters.

Mr Kaplan said he is not sure there will be enough economic data before the Fed's next policy meeting in late January to justify raising rates then, but "between now and March I think there will be." Kaplan's comments differ somewhat from those earlier in the day from Atlanta Fed President Dennis Lockhart, who said there may not be enough data even by March to make a call for raising rates.

Still, Kaplan, who was a longtime banker for Goldman Sachs, said he was withholding judgment about the implications of China's market swings for the US economy. "We have to pay attention to underlying economic conditions and we certainly have to watch what's going on with financial conditions," he said, adding that markets can swing one way one week and another the next. "You got to give it some time to see how things unfold," he said.

REUTERS

      

China seeks to stabilise yuan, stocks still fragile

China set another firm fix for its currency on Tuesday and stepped up a verbal campaign, backed by what dealers said was aggressive buying, to convince sceptical investors that they were in control of events. 

PHOTO: REUTERS

JAN 12, 201612:26 PM

[SHANGHAI] China set another firm fix for its currency on Tuesday and stepped up a verbal campaign, backed by what dealers said was aggressive buying, to convince sceptical investors that they were in control of events.

Analysts said offshore buying by state-owned banks, under the direction of the People's Bank of China (PBOC), dried up yuan liquidity to such an extent that overnight yuan borrowing rates in Hong Kong (HIBOR) hit a record 66.8 per cent, and the spread between onshore and offshore yuan exchange rates briefly evaporated.

Last week, the spread had exceeded 2 percent, making it harder for Beijing to stem the flow of capital from its slowing economy. "The strength of its (the PBOC's) actions appears to have reached the 'nuclear-weapon' level, and is comparable to that of the steps taken by other central banks when they previously fought against international speculators, such as George Soros,"said a senior dealer at a European bank in Shanghai.

China's equity markets, which tumbled 10 per cent last week and a further 5 percent on Monday, remained volatile, going from black to red and back again. At the end of the morning session the Shanghai Composite Index was up 0.4 per cent, and the CSI300 index had added 1 per cent.

The PBOC set the mid-point for the yuan at 6.5628 per dollar, just two pips weaker than the previous strong fix and firmer than its spot levels late on Monday.

The spot yuan weakened from its overnight close to 6.5733 to the dollar, but offshore it strengthened as much as 180 pips to 6.5660, reversing a spread that had threatened last week to become unmanageable.

Perceived mis-steps by the authorities have stoked concerns in global markets that Beijing might be losing its grip on economic policy, just as the country looks set to post its slowest growth in 25 years.

Fitch Ratings said the government was grappling with a"sharpening dilemma between a perceived need to keep interest rates low to help the economy manage its debt burden, and downward pressure on the Chinese yuan and foreign reserves".

Sources suggested there were moves afoot for China's cabinet to take a bigger role in overseeing financial markets.

The State Council has set up a working group to prepare for upgrading the cabinet's financial department to bureau level, said a source close to the country's leadership.

Officials were doing their best to talk up the currency.

The PBOC plans to keep the yuan basically stable against a basket of currencies, and fluctuations against the U.S. dollar will increase, Ma Jun, the central bank's chief economist, said on Monday.

Han Jun, deputy director of the office of the Chinese Communist Party's Leading Group on Financial and Economic Affairs, said a more substantial decline in the yuan was"ridiculous" and "impossible".

He was speaking at a briefing held at the Chinese consulate in New York, suggesting the authorities were broadening their verbal campaign to deter yuan sellers.

Not all are convinced, however. Goldman Sachs on Monday sharply cut its forecast for the yuan for this year and next. "With export growth deeply in negative territory, and exports likely to remain weak in coming months, it is likely easier to reach a policy consensus to allow some depreciation,"Goldman analysts wrote in a note.

Figures for China's December trade accounts are due on Wednesday and are expected to show further falls in both exports and imports.

REUTERS

    
 

China says added 13m new jobs in 2015: state planner

China's top economic planning agency said on Tuesday it expects the economy to have added 13 million new jobs in 2015. 

PHOTO: REUTERS

JAN 12, 201610:22 AM

[BEIJING] China's top economic planning agency said on Tuesday it expects the economy to have added 13 million new jobs in 2015.

China also expects GDP growth of around 7 per cent in 2015, Li Pumin, spokesman for the National Development and Reform Commission (NDRC) told a news conference in Beijing.

He said he expects China to have achieved its main economic targets in 2015.

REUTERS

    
 

UK small business euro transfers cost 4 billion pounds a year: study

JAN 12, 20168:25 AM

[LONDON] Small businesses in Britain that trade with the euro zone spend nearly 4 billion pounds (US$5.8 billion) a year transferring money abroad, partly because a lack of transparency makes it tough for them to get the best deal from banks, a study showed on Tuesday.

Britain has been trying to increase competition in banking and reduce the dominance of its major banks, which include Lloyds Banking Group, Royal Bank of Scotland, Barclays and HSBC. "When comparing costs among banks there is no straightforward way of deciding which one is the most expensive," the study said.

The research was conducted by payments industry consultancy Accourt and commissioned by Money Mover, an online currency exchange and international payments service for small business which competes with established players.

Britain's competition watchdog reviewed the market for current accounts and small business banking in 2014 and recommended measures to make it easier for customers to compare costs.

Accourt's study said total outgoing payments to the rest of Europe by small businesses in 2014 amounted to 162.92 billion pounds.

The study found that 96 per cent of the revenue for a bank on a 75,000 pound transaction within the EU came from a margin added to the money market exchange rate, known as the spread, but this was not disclosed to the customer. "We can conclude that on average banks are charging a total 2.43 per cent of the value transferred which equates to a value of 3.96 billion pounds," the study showed.

Accourt said it researched six of Britain's major banks to find the costs of making an international transfer. It also interviewed the banks to obtain its findings.

It asked each bank questions on fee structure and spread and charges for payments for different transaction sizes, from under 10,000 pounds to more than 100,000 pounds. Its analysis focused on euro transactions for comparison purposes.

Accourt said it was difficult to assess which banks charged the most for foreign currency transfers partly because of the volatility of the foreign exchange market.

Also, Accourt said a lack of transparency on how banks calculated the exchange rates meant the study could not produce"definitive conclusions" on which was the most expensive bank.

Accourt gave some examples of bank charges in its study. Based on an average transaction size of 75,000 pounds, Barclays'total transaction cost was 2,776 pounds, Lloyds' 2,047 pounds and NatWest, part of RBS, 1,799 pounds, Accourt said. "We wholeheartedly disagree with the figures used in this survey - they are not an accurate reflection of the rates offered under a comparison scenario and we would challenge the robustness of the methodology," a Barclays spokesperson said.

Royal Bank of Scotland had no comment. Lloyds did not immediately respond to a Reuters' request to comment.

REUTERS

    
 

Stocks may fall more, then it'll be time to buy, Goldman says

JAN 12, 20169:11 AM

[MADRID] The China-led rout that is sending shock waves through global markets may get worse, and if it does, that's when investors should turn back to equities, says Goldman Sachs Group Inc's Christian Mueller-Glissmann.

The stock strategist is neutral on global stocks - and has been since August - but he says any further drops would create opportunities to invest. He prefers European shares because they're cheaper than US ones, and the region's companies have bright earnings-growth prospects, according to him.

"After such a sharp correction, from a valuation point of view, you start to build that buffer that you didn't have at the beginning of December," Mr Mueller-Glissmann said in a phone interview from London last week. "You do have the potential to deliver high single-digit earnings growth. Europe should do well." The Stoxx Europe 600 Index had its worst week in more than four years and fell further on Monday, sending its valuation to 14.2 times estimated earnings, the lowest since last January. But the European Central Bank is supporting the economy, and that's poised to help the region's companies - companies that trade at a level that's about 8 per cent cheaper than US stocks.

Goldman Sachs sees the Stoxx 600 rallying 18 per cent in the next 12 months from MOnday's close, about double the gains it estimates for the Standard & Poor's 500 Index. Last week's rout changed nothing to its outlook.

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The bank is more bullish than others on European earnings. It forecasts profit growth of 8 per cent for Stoxx 600 companies this year, compared with 5.7 per cent for the average analyst projection compiled by Bloomberg. In 2017, it sees earnings rising 10 per cent.

And how to weather the turmoil? Invest in financial, staples and health-care companies, as well as those that are more linked to Europe's economic recovery, Mr Mueller-Glissmann says. Those may be more shielded from the storm in global equities, according to him.

While he favors European shares for their return potential, Mr Mueller-Glissmann isn't a bear on US equities. Goldman Sachs recommends investors keep their allocation to American stocks, even as it says they're nearing the end of a long bull market.

"We don't anticipate a US recession or a global recession, and that's required to put the US into a more prolonged bear market," he said. "At some point, valuation will get support." BLOOMBERG

    
 

Chinese banks' new non-performing loans more than doubled in 2015: sources

New non-performing loans (NPL) held by Chinese banks more than doubled in 2015 from the previous year, two people with direct knowledge of the matter said. 

PHOTO: REUTERS

JAN 12, 20169:17 AM

[SHANGHAI] New non-performing loans (NPL) held by Chinese banks more than doubled in 2015 from the previous year, two people with direct knowledge of the matter said.

The NPLs in China's banking sector increased 257.4 billion yuan (S$56.3 billion) to 1.43 trillion yuan during 2014, suggesting that new NPLs surged more than 500 billion yuan last year.

The people, who declined to be identified because they were not allowed to speak to the media, told Reuters that total NPLs reached 1.95 trillion yuan in 2015.

The China Banking Regulatory Commission did not respond to Reuters' request for comment.

REUTERS